* Academy ot Management Review

2001, Vol. 26. No. 3, 397-414.

TOWARD A DESCRIPTIVE STAKEHOLDER

THEORY: AN ORGANIZATIONAL LIFE
CYCLE APPROACH
I. M. lAWAHAR
Illinois State University

GARY L. MCLAUGHLIN
Wal-Mart Stores, Inc.

We integrate theory and research from disparate areas to develop a descriptive

stakeholder theory. We (1) show that at any given organizational life cycle stage,
certain stakeholders, because oi their potential to satisfy critical organizational
needs, will be more important than others; (2) identify specific stakeholders likely to
become more or less important as an organization evolves from one stage to the next;
and (3) propose that the strategy an organization uses to deal with each stakeholder
will depend on the importance of that stakeholder to the organization relative to other
stakeholders. . ; v: ;,

In the literature on organizations, scholars
have tended to generate studies that focus ex-
clusively on mature organizations (Kimberly &
Miles, 1980). This bias is apparent in the study of
corporate social performance (CSP) as well
(Thompson & Hood, 1993). Taking a long-term
perspective will permit researchers to study
how the strategies an organization uses to deal
with multiple stakeholders change as the organ-
ization evolves through the stages of formation,
growth, maturity, and decline or revival.
In an influential article Clarkson (1995) notes
that a corporation's survival and continuing suc-
cess depends upon the ability of its manage-
ment to create sufficient wealth, value, or satis-
faction for all primary stakeholder groups.
Additionally, he argues that "the economic and
social purpose of the corporation is to create and
distribute increased wealth and value to all its
primary stakeholder groups, without favoring
one group at the expense of others" (1995: 112).
Similarly, Jones and Wicks argue that "the inter-
ests of all (legitimate) stakeholders have intrin-
sic value, and no set of interests is assumed to
dominate the others" (1999: 207). These norma-
tive prescriptions may appropriately describe
CSP of organizations in the mature stage. How-
ever, organizations in start-up or decline/revival
We gratefully acknowledge the significant help of asso-
ciate editor Arthur Brief and three anonymous reviewers
with previous versions of the manuscript.
397
stages are likely to favor certain stakeholders
(see Gioia, 1999), depending on the extent to
which they are dependent on those stakeholders
for resources critical to organizational survival.
Organizations are unlikely to fulfill all the
responsibilities they have toward each primary
stakeholder group. Instead, they are likely to
fulfill economic and all noneconomic responsi-
bilities of some primary stakeholders but not
others and, over time, to fulfill responsibilities
relative to each stakeholder to varying extents.
This variation in how organizations deal with
different stakeholders, simultaneously and over
time (i.e., across life cycle stages), has not been
addressed in the extant literature. Changes in
the relative importance of primary stakeholders
over time have not been addressed because of
the cross-sectional and almost exclusive focus
in the literature on mature organizations. By tak-
ing a long-term perspective, we attempt to de-
scribe how an organization's relationship with
each of the primary stakeholder groups is likely
to vary with the life cycle stage of the organiza-
tion.
In this article we integrate theory and re-
search on resource dependence theory, prospect
theory, and organizational life cycle models to
develop a descriptive stakeholder theory. The
theory explains heretofore overlooked but im-
portant questions, such as which primary stake-
holders are important, why and when they are
important, and how managers allocate re-
398 Academy of Management Review
sources among primary stakeholders. The the-
ory is descriptive and contains many testable
propositions, and it has the potential to focus
future empirical research on stakeholder man-
agement. We base this theory on the premise
that organizations face different pressures and
threats at different stages in the organizational
life cycle. Therefore, at different stages different
stakeholders become critical for organizational
survival. Consequently, depending on who the
critical stakeholders are at each stage, an
organization is likely to use different strategies
to deal with those critical stakeholders versus
other stakeholder groups.
We organize the paper as follows. First, we
briefly review the literature on CSP and stake-
holder management as a general backdrop. We
then identify potential stakeholders and de-
scribe four possible strategies from the litera-
ture that an organization could use to deal with
each of those stakeholders. Next, we examine
resource dependence theory and prospect the-
ory, because both of these theories have strong
implications for stakeholder management in our
comprehensive stakeholder theory. Specifically,
based on resource dependence theory, we argue
that stakeholders most likely to have access to
resources needed for organizational survival
will elicit more attention from organizational
decision makers than stakeholders who have
less access to such critical resources. Based on
prospect theory, we argue that threats (or ab-
sence of threats) to organizational survival will
influence framing of resource allocation deci-
sions and, concomitantly, the "riskiness" of
strategies adopted by organizational decision
makers to deal with stakeholders. Finally, after
briefly discussing the general stages in an or-
ganization's life cycle, for each stage we identify
the critical stakeholders and discuss the strate-
gies an organization is likely to adopt to deal
with critical stakeholders versus those who are
less critical to the organization.
A SELECTED REVIEW OF LITERATURE ON
CSP AND STAKEHOLDER MANAGEMENT
In a seminal article on CSP, Carroll (1979) ar-
gues that economic and noneconomic responsi-
bilities are not separate issues but, rather, are
part of corporate social responsibility (CSR).
Carroll defines CSR as encompassing "the eco-
nomic, legal, ethical, and discretionary expecta-
luly
tions that society has of organizations at a given
point in time" (1979: 500). Borrowing from Wilson
(1974), Carroll notes that organizations could use
the strategies of reaction, defense, accommoda-
tion, and proaction to address their economic,
legal, ethical, and discretionary responsibili-
ties.
Building on Carroll's work, Wartick and Coch-
ran (1985) attempted to construct a general
model of CSP. They defined the CSP model as
"the underlying interaction among the princi-
ples of social responsibility, the processes of
social responsiveness, and the policies devel-
oped to address social issues" (1985: 758) and
showed that several competing perspectives
(economic responsibility, public responsibility,
social responsiveness) could be incorporated
into their framework. Their model of CSP con-
tains the three components of CSR, corporate
social responsiveness, and social issues man-
agement. In both models the processes of social
responsiveness are identified as reactive, defen-
sive, accommodative, and proactive. In Wood's
(1991a,b) model, CSP is defined as an organiza-
tion's configuration of principles of social re-
sponsibility, processes of social responsiveness,
and observable outcomes as they relate to the
firm's societal relationships.
In recent years many scholars have proposed
that integrating CSP with stakeholder manage-
ment concepts could lead to a better under-
standing of business and society relationships
(e.g., Brenner & Cochran, 1991; Clarkson, 1995;
Donaldson & Preston, 1995; Jones, 1995; Mitchell,
Agle, & Wood, 1997; Rowley, 1997). For instance,
Clarkson (1995) has proposed that CSP can
be analyzed and evaluated more effectively by
using a framework based on how corporations
manage their relationships with stakeholders
than by using models and methodologies based
on the concepts of CSR and responsiveness.
Likewise, Wood and Jones (1995) argue that
stakeholder theory holds the key to understand-
ing the structures and dimensions of business
and society relationships. Several authors (e.g.,
Brenner & Cochran, 1991; Jones, 1995) have
treated the stakeholder construct as the founda-
tion for a theory of the firm and as a framework
for the business and society field.
The concept of stakeholder management was
introduced in the strategic management litera-
ture by Freeman (1984). Recently, Donaldson and
Preston (1995) presented a taxonomy of stake-
2001 Jawahar and McLaughlin
holder theory types—normative, instrumental,
and descriptive/empirical—and used the taxon-
omy to guide their discussion of the stakeholder
literature. Much of the literature in stakeholder
management is from the normative realm,
which concerns how managers should deal with
corporate stakeholders. One of the central tenets
of normative stakeholder theory is that firms
should attend to the interests of all their stake-
holders—not just their stockholders. A common
theme among these scholars is that firms should
treat stakeholders as "ends" (e.g., Boatright,
1994; Clarkson, 1995; Evan & Freeman, 1983;
Goodpaster, 1991). In general, scholars having
normative perspectives prescribe how all stake-
holders should be treated on the basis of some
underlying moral or philosophical principles.
The implication is that moral principles should
drive stakeholder relations—an implication not
supported by empirical research (Berman,
Wicks, Kotha, & Jones, 1999).
Instrumental theory links "means" and "ends"
and contains such statements as "Certain out-
comes (corporate performance) are more likely if
firms/managers behave in certain ways (strate-
gically manage stakeholders)." A fundamental
assumption is that the ultimate objective of cor-
porate decisions is marketplace success, and
stakeholder management is a means to that
end. Synthesizing ethics and economics, Jones
(1995) presents the most well-articulated instru-
mental theory. He makes a case for the general
proposition that if firms contract (through their
managers) with their stakeholders on the basis
of mutual trust and cooperation, they will have a
competitive advantage over firms that do not. In
general, instrumental stakeholder theorists stop
short of exploring specific links between cause
(stakeholder management) and effect (corporate
performance) in detail, but such linkage is cer-
tainly implicit (Donaldson & Preston, 1995). This
is most apparent in the research linking mea-
sures of CSP (e.g.. Fortune Reputational Index,
KLD ratings) with financial performance (e.g.,
ROI, ROA, and so forth).
Although there are only a few instrumental
stakeholder theories, the bulk of the research on
CSP/stakeholder management is implicitly
based on the instrumental perspective. Re-
search linking CSP with corporate performance
is not based on theory, because the reasons for
expecting a relationship are not clearly articu-
lated. Moreover, scholars have reported incon-
399
sistent results (see Donaldson & Preston, 1995:
77, and Griffin 8f Mahon, 1997: 6). In a majority of
the studies in which researchers have found a
relationship, positive correlations have been re-
ported between overall CSP (as opposed to CSP
toward the different stakeholders) measured
across industries (as opposed to within indus-
tries) and various measures of financial perfor-
mance. In the rest, researchers have attempted
to justify post hoc why certain stakeholders in-
fluence corporate performance.
In contrast to the normative and instrumental
perspectives, very little descriptive theory or re-
search, which describes how organizations in-
teract with stakeholders, exists in the extant
stakeholder management literature (Berman et
al., 1999). Brenner and Cochran (1991) were the
first to propose a descriptive stakeholder theory
of the firm. According to them, "The stakeholder
theory of the firm posits that the nature of an
organization's stakeholders, their values, their
relative influence on decisions and the nature of
the situation are all relevant information for pre-
dicting organizational behavior" (1991: 462; cf.
Jones & Wicks, 1999: 208). Although Brenner and
Cochran argue that "values which are highly
weighted should be favored in actual choice
situations" (1991: 462), they stop short of both
substantive prediction and description of the
mechanisms through which the predicted be-
havior might occur (cf. Jones & Wicks, 1999: 208).
In another attempt at descriptive theory, Jones
proposes that "managers behave as if stake-
holders mattered because of the intrinsic justice
of their (stakeholders') claims on the firm"
(Jones, 1994: 100). Researchers have investigated
claims of this type and found some support for
them (e.g., Clarkson, 1995). As Jones and Wicks
note, "Claims of this type do not fully exploit the
possibilities for stakeholder-based descriptive
theory" (1999: 208).
Recently, Mitchell et al. (1997) attempted to
develop a descriptive stakeholder theory. Their
propositions about stakeholder identification
and stakeholders' salience to corporate manag-
ers are based upon the moral legitimacy of a
stakeholder's claim, the stakeholder's power to
influence the firm, and the urgency of the stake-
holder's issue. The central thesis of their theory
is that stakeholder salience will be positively
related to the cumulative number of stakeholder
attributes of power, legitimacy, and urgency.
400 Academy of Management Review
Because the stakeholder theory we propose is
descriptive, we should consider extant descrip-
tive stakeholder theory. For instance, Brenner
and Cochran's (1991) central proposition is so
broad it is not falsifiable. Jones' (1994) claim is
falsifiable; a single claim, however, falls short
of a descriptive theory. And Mitchell et al.'s
(1997) model is limited to describing attributes
that contribute to the salience of stakeholders; it
does not specifically identify stakeholders who
will be salient to management but states only
that stakeholders who possess more attributes
will be perceived as more salient than those
who possess fewer attributes. The Mitchell et al.
model does not address an issue central to
stakeholder management: how an organiza-
tion's management deals with stakeholders who
vary in terms of salience.
In this article we offer a new and more com-
prehensive stakeholder theory in which we de-
scribe which stakeholders will be important (or
salient), when they will be important, and how
firms will deal with stakeholders who vary in
terms of importance. Additionally, and in con-
trast to the (implicit) focus of much of the organ-
izational literature on mature organizations, our
proposed theory addresses the aforementioned
concerns within the context of each stage of the
organizational life cycle.
STAKEHOLDERS AND STAKEHOLDER
MANAGEMENT STRATEGIES
According to Freeman's now-classic defini-
tion, "A stakeholder in an organization is any
group or individual who can affect or is affected
by the achievement of the organization's objec-
tives" (Freeman, 1984: 46). Although debate con-
tinues over whether to broaden or narrow the
definition (see Mitchell et al., 1997), most re-
searchers have used a variation of Freeman's
definition of a stakeholder (e.g., Clarkson, 1995;
Frooman, 1999; Rowley, 1997).
According to Clarkson (1995),
Primary stakeholder groups typically are com-
prised of shareholders and investors, employees,
customers, and suppliers, together with what is
defined as the public stakeholder group: the gov-
ernment and communities that provide infra-
structures and markets, whose laws and regula-
tions must be obeyed, and to whom taxes
and other obligations may be due (Clarkson,
1995: 106).
July
Cohen (1995) and Donaldson and Preston (1995)
have added both trade associations and envi-
ronmental groups to Clarkson's (1995) list of pri-
mary stakeholders (see also Freeman, 1984).
Several researchers have highlighted the high
level of interdependence between the corpora-
tion and its primary stakeholder groups (e.g.,
Donaldson & Preston, 1995; Freeman, 1984). For
instance, Clarkson (1995) has noted that without
the continuing participation of primary stake-
holders, an organization cannot survive as a
going concern.
Several scholars have suggested that an or-
ganization could adopt different approaches to
deal with each primary stakeholder group, in-
cluding proaction, accommodation, defense,
and reaction (Carroll, 1979; Clarkson, 1988, 1991,
1995; Gatewood & Carroll, 1981; Wartick & Coch-
ran, 1985). For instance, Carroll (1979) proposed
that organizations could use the aforementioned
approaches to address their economic, legal,
ethical, and discretionary responsibilities.
Wartick and Cochran (1985), following Carroll
(1979), used the terms reacfive, defensive, ac-
commodative, and proactive to characterize cor-
porate strategy toward social responsiveness.
Clarkson (1991, 1995) developed the RDAP scale
to measure the strategies of reaction, defense,
accommodation, and proaction and has success-
fully used the scale to describe strategies used
by organizations to deal with stakeholders.
According to these scholars (e.g., Carroll, 1979;
Clarkson, 1991; Wartick & Cochran, 1985), proac-
tion involves doing a great deal to address a
stakeholder's issues, including anticipating and
actively addressing specific concerns or leading
an industry effort to do so. Relative to proaction,
the strategy of accommodation is a less active
approach of dealing with a stakeholder's issues.
The defense strategy involves doing only the
minimum legally required to address a stake-
holder's issues. And the strategy of reaction in-
volves either fighting against addressing a
stakeholder's issues or completely withdrawing
and ignoring the stakeholder.
Clarkson (1995) adds a posture or strategy el-
ement to this framework in order to aid in defin-
ing the level of responsibility accepted for man-
aging stakeholder issues. The responsibility
posture or strategy for proaction is to anticipate
responsibility, for accommodation to accept re-
sponsibility, for defense to admit responsibility
but fight it, and for reaction to deny responsibil-
2001 Jawahar and McLaughlin
ity. For instance, the strategy used by Digital
Equipment Corporation to deal with suppliers is
a good example of proactive attention to a
stakeholder. Digital Equipment involves suppli-
ers on its product planning teams (Bleakley,
1995). Hewlett Packard uses a similar approach
to deal with suppliers (Burt, 1989), and Xerox
shares blueprints with suppliers and involves
them in designing parts (Burt, 1989). Proaction
thus involves attempts to enhance the interests
of a particular stakeholder. Accommodation in-
volves accepting responsibility but, at the same
time, bargaining to obtain concessions. For in-
stance, to avert a strike by the United Auto
Workers in 1987, General Motors (GM) evidenced
use of the accommodation strategy, promising
job security to union members contingent upon
productivity gains to be developed by labor-
management committees (Zellner & Berstein,
1987). The defense strategy involves defending
against demands to do more than the minimum
legally required. An example of this strategy is
Valero Energy Corporation's argument that be-
cause it is in full compliance with U.S. EPA reg-
ulations, claims of damages by community
stakeholders are groundless (Elder, 2000). Fi-
nally, Ford Motor Company's refusal to recall
Pinto on the assumption that each explosion
was an isolated incident {Auto Week, 1989) and
Exxon's refusal to continue its oil-spill cleanup
efforts beyond September 15, 1989, regardless of
whether or not the cleanup was completed
(Egan, 1989), are two examples of the use of
reaction strategy to deal with affected stake-
holders.
The strategies of proaction, accommodation,
defense, and reaction are legally defensible, al-
though the latter two may be less satisfactory to
stakeholders than proaction and accommoda-
tion. When the strategies of proaction, accom-
modation, defense, and reaction are considered
individually, the most resources (management
attention and financial commitment) are likely
to be necessary for proaction and the least for
reaction. For instance, proactively addressing
employee compensation concerns by paying
premium wages and providing stock options
and profit sharing is likely to require more re-
sources than engaging in the defensive strategy
(doing only the minimum legally required) of
only assuring payment of wages and providing
mandatory benefits. Likewise, proactively in-
vesting in training and development is likely to
401
require more resources than using a reactive
strategy—that is, denying responsibility for
training and development.
In the next section we describe resource de-
pendence theory and propose that the strategies
an organization uses to deal with different
stakeholders will be influenced by the extent to
which the organization is dependent on those
stakeholders for resources critical to the organi-
zation.
RESOURCE DEPENDENCE THEORY
We believe that resource dependence theory
(Pfeffer & Salancik, 1978) can be used to explain
the relative importance of primary stakeholder
groups to an organization. In this theory an or-
ganization is conceptualized as being depen-
dent on resources in its environment for its sur-
vival. The extent to which an organization is
dependent upon external organizations and
stakeholders depends on the importance of a
particular resource to the organization, the de-
gree to which those who control the resource
have monopoly over the resource, and the dis-
cretion they have over its allocation (Frooman,
1999; Mitchell et al., 1997; Pfeffer & Salancik,
1978). Because of resource dependencies, man-
agers do not have unbridled strategic choice, as
Andrews (1971) and Child (1972) originally pro-
posed, but must make strategic choices within
constraints (Hrebeniak &. Joyce, 1985; Pfeffer &
Salancik, 1978). These strategic choices will be
aimed, at least in part, at managing external
dependencies both to guarantee the survival of
the organization and to secure, if possible, more
independence and freedom from external con-
straints (Pfeffer, 1982: 192; see also Oliver, 1991).
An organization could manage these external
dependencies by adapting to its environment,
by altering constraints through interlocking di-
rectorships and joint ventures, or by changing
the legality of its environment through the use of
political action (Pfeffer & Salancik, 1978).
Hypotheses derived from resource depen-
dence theory have been supported in studies of
social service agencies (Aldrich, 1976), univer-
sity administrative structure (Tolbert, 1985), and
organizational failure (Sheppard, 1995). In a
dominant stream of research, scholars have in-
vestigated the relationship between board size
(number of directors) and financial performance.
According to resource dependence theory, larger
402 Academy of Management Review
boards are likely to be more effective than
smaller boards at forming external links to se-
cure critical resources (Goodstein, Gautam, 8t
Boeker, 1994; Pfeffer & Salancik, 1978: 172). Al-
though in a preponderance of studies evidence
in support of resource dependence theory has
been reported (e.g., Birnbaum, 1984; Pfeffer, 1972,
1973), Yermack (1996) found that board smallness
was associated with higher market evaluations
as well as higher returns on assets and returns
on sales. However, in a recent meta-analysis of
131 samples (N = 20,620), Dalton, Daily, Johnson,
and Ellstrand (1999) reported a corrected mean
correlation of .16 between board size and finan-
cial performance.
One of the basic tenets of resource depen-
dence theory is that organizations will be con-
cerned with, pay more attention to, and deal
with sources of critical resources to ensure con-
tinued survival. This tenet, which is central to
our thesis, has received ample empirical sup-
port (e.g., Aldrich, 1976; Pfeffer, 1972; Sheppard,
1995; Tolbert, 1985).
In summary, resource dependence theory in-
dicates that "organizations must attend to the
demands of those in its environment that pro-
vide resources necessary and important for its
continued survival... organizations will (and
should) respond more to the demands of those
organizations or groups in the environment that
control critical resources" (Pfeffer, 1982: 193). Ex-
tending this theory to stakeholders seems to
suggest that organizations will pay more atten-
tion to and be more concerned with issues of
stakeholder groups who control resources criti-
cal to the survival of an organization (Agle,
Mitchell, & Sonnenfeld, 1999; Kreiner & Bhambri,
1991). This dependence of firms on stakeholders
for resources translates into power for the stake-
holder group(s) involved (Mitchell et al., 1997)
and gives those stakeholders leverage over
firms (Frooman, 1999). Power is often a function
of the organization's dependence on the stake-
holder. Generally, the more dependent the or-
ganization, the more powerful the stakeholder
(Frooman, 1999). For instance, in a study involv-
ing insurance companies, Kreiner and Bhambri
(1991) found that organizations were more con-
cerned with and gave high priority to public
policy issues generated by critical stakeholders.
In a more recent study, in which data provided
by CEOs of eighty large U.S. firms were used,
Agle et al. (1999) found that the degree to which
luly
top managers give priority to stakeholders is
substantially influenced by the power attributed
to those stakeholders.
Clearly, given that organizations have finite
resources in terms of time and money, organiza-
tions are unlikely to proactively address issues
and concerns of all stakeholders all the time.
Theory (Pfeffer & Salancik, 1978) and research
(e.g., Kreiner & Bhambri, 1991) on resource de-
pendence indicate that organizations will pay
more attention to stakeholders who control re-
sources critical to the organization than to
stakeholders who do not control such critical
resources. We argue that the different levels of
attention devoted to the different stakeholders
will be manifested in the form of different strat-
egies (i.e., reaction, defense, accommodation,
and proaction) used to deal with those stake-
holders. , ,
^ - •^ PROSPECT THEORY
Prospect theory (Kahneman & Tversky,
1979)—a behavioral decision theory—nicely
complements resource dependence theory in ex-
plaining how and why an organization's man-
agement allocates different levels of attention to
different stakeholders. Central to prospect the-
ory is the hypothetical value function depicting
the relationship between the actual value of an
option and the psychological value of that op-
tion. The hypothetical value function suggests
that an individual's estimate of the psychologi-
cal value of an option differs systematically
from the actual value of that option. This differ-
ence is attributed to the reference point individ-
uals use to evaluate options. A typical reference
point is the status quo—one's current posi-
tion—or it could be an aspiration—the level of
benefit one hopes to achieve (Kahneman & Tver-
sky, 1984).
Kahneman and Tversky (1979) posit that the
reference point determines whether the out-
comes are evaluated in terms of gains or losses.
Any loss or postponement of a gain is framed as
a loss. The avoidance or postponement of a loss
is framed as a gain. Because most subjects have
an S-shaped value function that is concave in
the domain of gains and convex in the domain of
losses, losses relative to the reference point
loom larger than gains such that one unit of loss
is weighted more than an equal amount of gain.
Consequently, individuals are risk seeking in
2001 Jcrwahar and Mclaughlin
the loss domain but risk averse in the gain do-
main.
In studies investigating this framing hypoth-
esis, researchers have demonstrated that dis-
crete choices between a risky and riskless (cer-
tain) option of equal expected value indeed
depend on whether the options are described in
positive terms (e.g., lives saved) or in negative
terms (e.g., lives lost). In their classic study Tver-
sky and Kahneman (1981) demonstrated a choice
reversal in which the majority of the subjects
who were given the positively framed version of
the "Asian disease problem" (a certain option of
saving one-third of the lives versus a one-third
chance of saving all lives and a two-thirds
chance of saving no lives) selected the option
with the certain outcome, whereas the majority
of subjects who were given the negatively
framed version (a certain loss of two-thirds of
the lives versus a one-third chance of losing no
lives and a two-thirds chance of losing all lives)
selected the risky option. After an exhaustive
review of the research on framing effects. Levin,
Schneider, and Gaeth concluded that
overall, evidence for the effect of framing on risky
choice reveals a relatively consistent tendency
for people to be more likely to take risks when
options focus attention on the chance of avoiding
losses than when options focus on the chance to
realize gains. The opposite pattern, wherein risk
taking is more common for the positive than the
negative frame, is rare (1998: 153).
In a recent meta-analysis conducted with 157
single effect sizes, Kuhberger (1998) reported an
overall effect size of d = .5, providing strong
support for the framing effects hypothesized in
prospect theory.
However, arguments and results purported to
contradict prospect theory have also been pre-
sented. For instance, Staw, Sandelands, and
Dutton (1981) presented the threat-rigidity hy-
pothesis, positing that entities faced with
threats will become rigid and more likely re-
spond in a conservative manner. Based on such
arguments, several authors have proposed that
empirical results of risk taking for opportunities
and risk aversion for threats contradict prospect
theory's prediction of risk aversion for gains and
risk seeking for losses (e.g., HoUenbeck, Ilgen,
Phillips, & Hedlund, 1994).
Such an interpretation is inaccurate for two
reasons. First, the constructs "threat" and "op-
portunity" are distinct from Kahneman and
403
Tversky's gain domain and loss domain. Threats
and opportunities refer to individual percep-
tions, whereas loss and gain refer to decision-
making perspectives. Indeed, Highhouse and
Yuce (1996) have presented evidence to show
that threat/opportunity perceptions can have ef-
fects on risk independent of loss and gain per-
spectives. Second, the framing manipulation in
studies that purport to contradict predictions of
prospect theory is of the outcome salience/
attribute framing type, which is different from
the reference point/risky choice framing under-
lying prospect theory (see Levin et al., 1998, for a
detailed discussion). For instance, Kuhberger
(1998) argues that Staw et al.'s (1981) threat-
rigidity hypothesis applies only to studies in
which the salience of outcome is manipulated
(e.g., HoUenbeck et al., 1994) and has little to do
with prospect theory.
Although in some studies researchers have
failed to find framing effects as predicted in
prospect theory (e.g.. Smart 8f Vertinsky, 1977), in
studies that purport to have found results oppos-
ing predictions of prospect theory, researchers
have inappropriately invoked prospect theory
(Kuhberger, 1998; Levin et al., 1998) to explain
results. In summary, a preponderance of re-
search has shown that individuals are risk
averse for gains of high probability, choosing a
certain option over a risky option, and are risk
seeking for losses of high probability, choosing
a risky option over a certain option (Tversky &
Kahneman, 1992).
Labels such as threat and opportunity typi-
cally used by strategic decision makers to clas-
sify environmental events (Christensen, An-
drews, Bowen, Hamermesh, & Porter, 1982;
Dutton & Jackson, 1987) could serve as reference
points and influence how the decision question
is framed—that is, as a loss or as a gain. Pros-
pect theorists posit that in the context of gains,
individuals will be risk averse and choose the
option with a certain outcome over a risky op-
tion, whereas in the context of losses, individu-
als will be risk seeking and choose the risky
option over the option with a certain outcome.
Actively addressing the interests and issues
of all primary stakeholders would be a "certain"
option—an option certain to elicit a continuous
flow of resources needed by the organization to
survive and prosper. Theoretically, then, an or-
ganization's most risk-averse approach for deal-
ing with stakeholders would be to address all
404 Academy of Management Review
stakeholder groups and their issues in a proac-
tive or accommodative manner. Proaction and
accommodation involve anticipating and ac-
cepting responsibility, respectively; both in-
volve addressing stakeholder issues to enhance
the interests of stakeholders. In contrast to the
defense or reaction strategy, proaction and ac-
commodation are the most risk-averse manage-
ment strategies, because such strategies are
more likely to satisfy stakeholders. Satisfying
stakeholders is likely to prevent potential prob-
lems, such as unfavorable publicity, disruptive
employee actions, and lawsuits that could im-
pede the flow of resources needed by the organ-
ization (Frooman, 1999; Mitchell et al., 1997).
The "riskiest" option would be to ignore the
interests and issues of all stakeholders. Because
organizations are dependent on other organiza-
tions and stakeholders for resources, this would
not be a viable strategy—not practical because
an organization cannot exist in a vacuum (Pfef-
fer & Salancik, 1978) but, rather, is dependent on
stakeholders for resources. Some of these stake-
holders may control resources critical for sur-
vival. Issues of these stakeholders have to be
addressed more actively than issues of stake-
holders who do not control such critical re-
sources. Stakeholders who are critical for sur-
vival have to be dealt with in a proactive
manner or, at the very least, accommodated. The
strategies of defense and/or reaction, however,
could be used to deal with the less critical stake-
holders. The defense strategy involves defend-
ing against the demands of stakeholders, and
the reaction strategy involves denying any re-
sponsibility for stakeholder issues. Both of these
strategies are likely to be less satisfactory to
stakeholders than the strategies of proaction
and accommodation. Actively addressing the in-
terests and issues of some but not all stakehold-
ers would be a "risky" option, because stake-
holders whose interests were not addressed
satisfactorily might either directly or through
other stakeholders hinder the supply of re-
sources needed by the organization (Frooman,
1999; Mitchell et al., 1997).
In summary, actively addressing the issues of
all stakeholders would be a "certain" option il-
lustrative of risk aversion. Using the strategies
of proaction or accommodation to address is-
sues of some stakeholders but using the strate-
gies of defense or reaction to address the issues
of other stakeholders would be a "risky" option.
July
illustrative of risk seeking. Based on prospect
theory and resource dependence theory, we pro-
pose two theorems.
Theorem 1: /n the absence of threats to
organizational survival, a gain frame
will be adopted, and the organization
will pursue a risk-averse strategy and
actively address aJl stakeholders' is- '/
sues. ^
Theorem 2: In the presence of threats
to organizational survival, a loss
frame will be adopted, and the organ-
ization will pursue a risky strategy. ?
•?' The risky strategy will involve ac-
tively addressing issues of only those
stakeholders who are relevant to the
• immediate loss threat while at the
same time defending or denying any
responsibility for issues of other stake-
, ; holders, taking, of course, the risk as-
sociated with such neglect. . .
ORGANIZATIONAL LIFE CYCLE
Models of life cycle stages are not new in the
literature on organizations (Chandler, 1962).
Chandler introduced stages to a life cycle model
in which he noted that as stages changed, so did
firms' strategies and structures. Organizational
life cycle models vary widely in a number of
features, including the actual number of stages.
Based on a study of 181 periods of history from
three dozen firms. Miller and Friesen (1980) sug-
gested a rough sequential ordering of stages:
birth, growth, maturity, and revival. Using Miller
and Friesen's (1984) data, Drazin and Kazanjian
(1990) reanalyzed the life cycle progression hy-
pothesis and found support for a four-stage
model. Also, in a number of studies, researchers
have used the four-stage model (see Baird 8f
Meshoulam, 1988). In general, the life cycle of a
typical organization consists of four identifiable
but overlapping phases of start-up, emerging
growth, maturity, and revival. j.
Theory and research indicate that the behav-
ior of organizations can be predicted by means
of organizational life cycle models (see Milli-
man. Von Glinow, & Nathan, 1991). For instance.
Smith, Mitchell, and Summer (1985) found that
priorities of top management varied with or-
ganizations' life cycle stages. Cameron and her
colleagues have established a link between life
2001 Jawahai and McLaughlin
cycle stages and criteria for evaluating organi-
zational effectiveness. For instance, in one study
Quinn and Cameron (1983) developed a model to
show that criteria used to evaluate effectiveness
vary with the stage of the organization in the
organizational life cycle. In another study Cam-
eron and Whetten (1981) used eighteen simu-
lated organizations to demonstrate that the cri-
teria for effectiveness varied with the stage of
the organization. Here we show that the relative
importance of stakeholders to an organization
will vary with the life cycle stage of the organi-
zation.
Theory and research suggest that the pres-
sures, threats, and opportunities in the external
and internal environment of an organization
vary with the life cycle stages (see Anderson &
Zeithaml, 1984; Dodge, FuUerton, & Robbins,
1994; Dodge & Robbins, 1992). For instance.
Dodge and Robbins (1992) analyzed 364 small
business case reports to identify the relative
frequency of major problem categories over the
life cycle and found that small businesses con-
tend with different problems in the various
stages of the organization's life cycle. In another
study Dodge et al. (1994) found that firms in the
early stages of the life cycle were more con-
cerned with potential obstacles to the attain-
ment of capital requirements than those in the
later stages. In another study involving 105
firms, Kazanjian (1988) found that problems per-
ceived as dominant by managers varied with
the life cycle stage of the organization. Although
a few specific hypotheses tested in these studies
did not receive empirical support, in general,
the aforementioned studies individually and
collectively demonstrate that the threats and op-
portunities vary with the life cycle stages of
organizations.
Because threats and opportunities vary with
life cycle stages, organizations are likely to
have different needs, in terms of resources, in
different stages of the organizational life cycle.
From the perspective of prospect theory, these
needs in the light of organizational resources
have the potential to serve as reference points
for making resource allocation decisions. In
some life cycle stages, certain needs are likely
to be so critical that if they are not fulfilled, the
organization is unlikely to survive. If fulfillment
of such critical life cycle-specific needs is se-
verely threatened or is forecasted to be severely
threatened, then the decision maker is likely to
405
adopt a loss frame and to interact with stake-
holders whose participation is most essential
for meeting those critical needs in a proactive
or, at the very least, accommodative manner.
The strategy of proaction involves anticipating
and accepting responsibility and, therefore, can
only be used when threats are forecasted. If a
threat currently exists, then it will be too late for
proaction, and firms can at best only use accom-
modation. The strategy of defense or reaction is
likely to be used in interacting with the other
stakeholders whose participation is not essen-
tial for meeting those critical needs. Alterna-
tively, in other life cycle stages, needs are un-
likely to rise to such a level as to threaten
organizational survival. In the absence of such
critical life cycle-specific needs, the decision
maker is likely to adopt a gain frame, pursue a
risk-averse strategy, and actively address con-
cerns and issues of all stakeholders.
A DESCRIPTIVE STAKEHOLDER THEORY
In this section we integrate organizational life
cycle theory, resource dependence theory,
prospect theory, and stakeholder management
strategies to present a descriptive stakeholder
theory. We (1) show that at any given organiza-
tional life cycle stage, certain stakeholders,
because of their potential to satisfy critical or-
ganizational needs, will be more important than
others; (2) identify specific stakeholders likely to
become more or less important as an organiza-
tion evolves from one stage to the next; and
(3) propose that the strategy an organization
uses to deal with each stakeholder will depend
on the importance of that stakeholder to the organ-
ization relative to other stakeholders.
Because an organization is dependent on its
environment for resources (Pfeffer & Salancik,
1978), the importance of a stakeholder will de-
pend on the needs of the organization and the
extent to which the organization is dependent
on that stakeholder, relative to other stakehold-
ers, for meeting its needs. Therefore, at any
given time, some stakeholders will be more im-
portant than others. Because the needs of an
organization change over time, the relative im-
portance of stakeholders will also change as the
organization evolves through the stages of start-
up, growth, maturity, and transition. We also
identify the particular stakeholders who are
likely to become more or less important. Organ-
 406 Academy oi Management Review
izations do not simply respond to each stake-
holder individually; they respond, rather, to the
interaction of multiple influences from the entire
stakeholder set (Rowley, 1997). We believe that,
depending on the relative importance of the
stakeholders, an organization will use different
strategies to deal with different stakeholders.
The theory we present here identifies the partic-
ular strategy a firm might use to deal with each
of the primary stakeholders in each stage of the
organizational life cycle. Identifying the relative
importance of stakeholders and describing
strategies an organization might use to deal
with those stakeholders is or should be the es-
sence of any viable descriptive stakeholder the-
ory. This paper is the first to advance such a
comprehensive descriptive stakeholder theory.
Start-up Stage
The start-up stage is the period in which de-
veloping and implementing a business plan, ob-
taining initial financing, and entering the mar-
ketplace are dominant concerns. In this stage
the most critical needs, which have the potential
to threaten organizational survival, are start-up
funds, cash flow, and customer acceptance
(Dodge et al., 1994; Dodge & Robbins, 1992). For
instance, using data provided by 105 firms,
Kazanjian (1988) found that securing financial
resources was perceived as a crucial problem in
the start-up stage. In another study, conducted
with data collected from 364 firms. Dodge and
Robbins (1992) found that finance and marketing
problems were perceived as crucial for organi-
zational survival. The specific marketing prob-
lems identified were establishing customer con-
tact and assessing and defining target markets;
finance problems were undercapitalization and
locating financial resources. These findings are
supportive of the argument that the viability of
the firm and subsequent movement to the next
stage depend upon securing financial resources
and gaining customer acceptance for products
and/or services.
The threat of organizational failure will
serve as the reference point; resource alloca-
tion decisions are likely to be framed as losses
or potential losses and a risk-seeking strategy
adopted. As discussed earlier (see the discus-
sion of prospect theory), decision makers who
are evaluating options in the loss frame will
choose a risky strategy over a riskless (certain)
July
strategy. The risk-seeking strategy involves
the choice of the risky option: actively ad-
dressing the issues and interests of some
stakeholders while simultaneously defending
against or denying responsibility for issues of
other stakeholders. We invoke resource depen-
dence theory to propose that issues of stake-
holders who control resources critical to a
start-up organization will be addressed ac-
tively, whereas issues of stakeholders on
whom the start-up organization is not depen-
dent for survival will not be actively ad-
dressed.
Relative to other stakeholders, shareholders
and creditors are likely to be the primary sup-
pliers of critical start-up funds, and customers
the primary source of revenues. Consequently,
shareholders, creditors, and customers are
likely to have the most potential to influence
organizational survival. Therefore, based on re-
source dependence theory, we propose that or-
ganizations will be proactive in attracting both
stockholders and creditors and in addressing
their issues. Proactive attention to customers
and their issues might also be expected, be-
cause they represent the source of continuing
cash flow. Enticing adequately trained appli-
cants to join the start-up venture as employees
is likely to at least require a competitive com-
pensation package, along with the assurance
that future compensation will be tied more
closely with organizational profits. Similarly, to
ensure timely supply of quality materials and,
at the same time, obtain price discounts, man-
agement might be expected to attempt to nego-
tiate flexible contractual arrangements with
suppliers. Such flexible contractual arrange-
ments might take the form of management's
making an exclusive commitment to a supplier
for a specific duration in order to obtain a steady
supply of an item (or items), with pricing contin-
gent upon the quantity of item(s) actually pur-
chased.
Although employees and suppliers, as stake-
holders, are important for survival, most likely
they will only be accommodated because of the
tremendous resources (time and financial com-
mitment) already expended to proactively ad-
dress the concerns and issues of stockholder,
creditor, and customer groups. Actively address-
ing issues of suppliers of capital and material
resources, customers, and employees is oiten
emphasized in the literature as critical for
2001 Jawahar and McLaughlin
avoiding failure of start-up organizations (Rous-
sel, 2000).
Given the loss frame and risk-seeking strat-
egy expected during start-up, the organization
will pursue a risky strategy to deal with the
remaining stakeholders, unless, of course, the
start-up requirements indicate a critical need
(e.g., obtaining a grant, permit, and so on) for
such stakeholders (e.g., government). There-
fore, a start-up firm is likely to pursue a de-
fensive strategy to deal with government and
community stakeholder groups, only satisfy-
ing the minimum requirements at the latest
possible date, primarily to avoid any reprisal,
legal or otherwise. This expectation is consis-
tent with the "not-too-uncommon" reports of
start-up firms facing cash-flow problems that
defer tax remittances as much as possible to
ensure survival.
Because of the loss frame and the concerns
of the more important stakeholders, a start-up
firm will use a reaction strategy to deal with
trade associations and environmental groups.
These stakeholders will be ignored, unless, of
course, the trade association or environmental
groups have something very valuable to offer
to the firm, such as permits, endorsements, or
critical information. In summary, we propose
the following.
Proposition 1: During the start-up
stage, resource allocation decisions
will be framed in the context of losses,
and a risk-seeking strategy of defense
or reaction will be pursued to deal
with stakeholders not critical for
organizational survival. Specifically,
a corporation will assume the risk of
using the strategy of reaction to deal
with trade associations and environ-
mental groups and the strategy of de-
fense to deal with government and
community stakeholders. However,
the corporation will use the strategy of
proaction to deal with stockholders,
creditors, and customers and the strat-
•'^ egy of accommodation to deal with
' employees and suppliers, since these
stakeholders are critical for survival.
Emerging Growth Stage
The emerging growth stage follows the
start-up stage. By this stage, the firm has
407
achieved a degree of success; the previously
dominant concern for survival has largely been
overcome, and the firm is actively seeking and
engaged in expansion opportunities. Typical
problems faced as sales activity steadily in-
creases are stabilizing production and product
(and/or service) reliability, matching demand in-
creases, maintaining cash flow, and formalizing
organizational structure (Dodge & Robbins,
1992). The emerging growth stage is the period
in which significant new investment is likely
and the number of employees, customers, and
geographic contact is expanded. Although these
needs may be significant, they are unlikely to be
critical enough to seriously threaten organiza-
tional survival. This assertion is consistent with
Hrebiniak and Joyce's (1985) position that firms
in the growth stage find their environment nei-
ther threatening nor constraining. In the ab-
sence of critical needs, and given initial suc-
cess, resource allocation decisions are likely to
be framed from the gain domain and a risk-
averse strategy adopted.
As described earlier, a risk-averse strategy
involves the choice of a certain option—that is,
an option most likely to ensure continued supply
of resources needed by the organization. Exer-
cise of this option will be manifested in the form
of addressing the issues of all stakeholders in a
proactive or accommodative manner. Based on
resource dependence theory, we suggest that
the choice between proactive and accommoda-
tive strategy will, of course, depend on the rel-
ative importance of stakeholders in terms of
their ability to meet the needs of an emerging
organization.
During this highest growth period, organiza-
tions fine-tune themselves into a clockwork op-
eration and tend to develop a bureaucratic
structure (Modis, 1994). Upon movement into this
rapid growth and expansion stage, the firm's
attention to stockholder issues may be reduced
to accommodation. Stockholder equity is al-
ready committed, and, generally, the stock mar-
ket is very generous to companies during this
period. However, if expansion were to be funded
with equity instead of debt, the assumption of
accommodation for stockholders would be inap-
propriate, and in such cases stockholders would
be dealt with in a proactive manner. Creditor
issues, however, could be expected to continue
receiving proactive attention, since creditors
would most likely be the source of funding for
 408 Academy oi Management Review
growth and expansion. In many cases invest-
ment bankers would also be a source of profes-
sional guidance. Proactive attention is likely to
be devoted to employee and supplier stakehold-
ers in order to address the need to build a qual-
ity workforce and products and to obtain re-
sources to accommodate such rapid growth and
expansion.
Demand usually exceeds supply during rapid
growth, and, consequently, attention to cus-
tomer issues may be reduced to accommodation.
Also, during the growth stage, an organization
may become proactively involved with relevant
trade associations in order to learn as much as
possible about potential opportunities and
threats. To minimize potential risks, the firm will
accept responsibility for government, environ-
mental, and community stakeholders, and their
concerns will be accommodated. Therefore, we
offer the following proposition.
Proposition 2: During the emerging
growth stage, resource allocation de-
cisions will be framed in the context of
gains, and a risk-averse strategy will
be pursued to deal with stakeholders.
Specifically, issues of creditors, em-
ployees, suppliers, and trade associa-
tions will be addressed proactively,
and concerns of stockholders, custom-
ers, governments, communities, and
environmental groups will be accom-
modated.
Mature Stage
The mature stage is the relatively flat period
that follows the rapid growth period. As an or-
ganization enters the mature stage, managers
often regard the company and themselves as
successful, respected leaders and role models.
Although the rate of growth has slowed, this
stage is often characterized by the overconfi-
dence of success, tempered, of course, with the
uncertainty of the search for a new direction that
could potentially lead the organization through
another period of rapid growth (Modis, 1994). The
mature stage is often attended by strong cash
flows, without particularly attractive investment
opportunities. In light of the leadership image,
overconfidence, excess cash, and the absence of
critical needs, resource allocation decisions are
likely to be framed from a gain domain, and a
risk-averse strategy is likely to be pursued.
July
In the mature stage most stakeholders will be
dealt with in a proactive manner. For example,
employees will be dealt with in a proactive
manner, and substantial investments in training
and development activities are likely in this
stage. Incentive programs to enhance productiv-
ity are likely to be implemented, and innovation
is likely to be encouraged and supported to fa-
cilitate the search for new direction. Commu-
nity, trade association, government, environ-
mental, and supplier stakeholders will also be
addressed proactively because of the availabil-
ity of excess cash and management's motivation
to live up to the leadership self-image. As the
mature stage progresses, stock prices are likely
to decline because of the reduced rate of growth.
Because stock prices decline owing to the re-
duced potential for future earnings, proactive
attention to shareholders' concerns may be es-
sential for lengthening the tenure of the organi-
zation's top management. However, because of
excess cash and the relative ease with which
mature organizations can raise capital (Dodge
et al., 1994), attention to creditors will be reduced
from proaction to accommodation. Creditors will
be accommodated to the extent they are needed
to maintain as strong a credit rating as possible
for outstanding debt.
Our assertion—in the mature stage a firm is
likely to deal with all primary stakeholders
(with the exception of creditors) in a proactive
manner—is consistent with theoretical argu-
ments (e.g.. Burke, Logsdon, Mitchell, Reiner, &
Vogel, 1986; McGuire, Schneeweiss, & Sundgren,
1988) and empirical findings. For instance. Burke
et al. (1986) propose that larger firms attract
more attention from external constituents and
need to respond more openly to stakeholder de-
mands. Given that firms are likely to be larger in
the mature stage than in any other stage. Burke
et al.'s proposal may be interpreted as support-
ive of our theoretical position that most, if not
all, stakeholders will be dealt with proactively
in the mature stage. In a sample of Fortune 500
firms, Stanwick and Stanwick (1998) found that
larger firms have higher levels of profitability
and CSP as measured by the Fortune Reputa-
tional Index. Similar findings have been re-
ported by others (e.g., Fombrun & Shanley, 1990).
From the slack theory's perspective, availability
of slack resources provides opportunities for or-
ganizations to invest in social performance
domains (see McGuire et al., 1988). Because of
2001 Jawahai and McLaughlin
excess cash, organizations in the mature stage
are likely to actively address issues of all stake-
holders. For instance, in a recent study con-
ducted with Standard and Poors 500 organiza-
tions, Waddock and Graves (1997) reported that
a multidimensional index of CSP was positively
related to financial performance of the previous
year. Based on the aforementioned theoretical
proposals and empirical findings supportive of
our arguments, we propose the following.
Proposition 3: During the mature
; stage, resource allocation decisions
will be framed in the context of gains,
and a risk-averse strategy of proaction ; .
will be used to deal with all stake-
holders, except for creditors, who will
be accommodated.
Decline/Transition Stage
As an organization begins to slip from the
mature stage into the stage of decline or transi-
tion, management is likely to reassess the strat-
egies currently in use to deal with the different
stakeholder groups. In this stage the demand for
an organization's traditional products and/or
services will be reduced, prompting manage-
ment to consider such strategies as mergers,
downsizing, and layoffs to ensure organization-
al survival. Since this is a survival stage, corpo-
rate decisions that pertain to CSP generally will
be framed from the context of losses, and a risk-
seeking strategy will be used to deal with stake-
holders other than those most needed for organ-
izational survival.
In the decline/transition stage, customer is-
sues may be given proactive attention in an
effort to build a new market or rebuild market
share. Scholars have argued that technical effi-
ciency is important when the rate of growth
slows (e.g., Adizes, 1979). Indeed, in a field study
Smith et al. (1985) found that regaining technical
efficiency was an important concern of top-level
managers. Similarly, Kazanjian (1988) found that
firms were especially concerned with develop-
ing second-generation or completely new prod-
ucts to spur growth. Creditors also will be ad-
dressed proactively in order to obtain more
funding, because most likely the excess cash
from the mature stage will now be depleted. For
instance, studies have shown that organiza-
tions' munificence or slack decreases as growth
409
slows (Ford, 1980). Shareholders' concerns will
be addressed proactively, if not to stabilize stock
prices at the very least to lengthen top manage-
ment tenure. Lengthening tenure by garnering
political support has been reported as a high
priority for top-level managers of firms in ad-
vanced stages (Smith et al., 1985).
Attention to employees and suppliers most
likely will be reduced to accommodation, and
the organization, in an effort to cut costs and
stabilize stock prices, will entertain and some-
times implement extreme cost-cutting mea-
sures, including downsizing, outsourcing, or re-
ducing the diversity of operations. For instance,
when Chrysler found itself in the revival/
transition stage, it bargained for and obtained a
wage concession from employees. That is,
Chrysler's strategy to deal with employees
shifted from proaction to accommodation.
Just as in the start-up phase, unless govern-
ment, community, trade association, and envi-
ronmental stakeholder groups are needed for
survival, organizations are likely to pursue a
defensive strategy toward governments and
communities, and they may ignore trade associ-
ations and environmental groups. This assertion
is consistent with arguments put forth by other
scholars. For instance, Meznar, Chrisman, and
Carroll (1991) argue that start-up firms and firms
on the verge of bankruptcy often resort to a clas-
sical strategy. A firm employing the classical
strategy concerns itself with nothing other than
economic performance and focuses primarily on
economic stakeholders. Decisions are made,
given legal constraints, entirely on the basis of
how they will affect the bottom line. Meznar et
al. add that "since a failed firm will add no
value to society, a classical strategy may be
warranted and preferred over the demise of the
firm" (1991: 59). According to these authors,
"Greyhound Bus Lines, as it downsized and re-
negotiated contracts in order to survive in an era
dominated by planes and automobiles, illus-
trates the economically oriented 'classical' strat-
egy" (Meznar et al., 1991: 59-80).
Chrysler did address governmental concerns
proactively, but only because the government
was a source of funding—and funding was es-
sential for Chrysler's survival. Nevertheless, the
Chrysler example confirms that as the threat to
survival becomes dominant in the decline/
transition stage, firms proactively manage
stakeholders important for survival. Relative to
 410 Academy of Management Review
organizations like Chrysler, most other organi-
zations are less important to the economy and,
consequently, are unlikely to attract as much
attention as Chrysler did from the government.
Because of resources expended to deal with im-
portant stakeholders like stockholders, credi-
tors, customers, employees, and suppliers, and
because of the lack of attention from govern-
ment stakeholder groups, organizations in the
decline/transition stage are likely to use the
strategy of defense to deal with the government
stakeholder group. Therefore, we offer the fol-
lowing proposition.
Proposition 4: During the decline/ #,:.
transition stage, resource allocation
decisions will be framed in the context
of losses, and a risk-seeking strategy ; ,
of defense or reaction will be used to
deal with stakeholders not critical for
organizational survival. Specifically,
the strategy of reaction will be used to
deal with trade associations and envi-
ronmental groups and the strategy of
defense to deal with government and
community. However, the strategy of
proaction will be used to deal with
stockholders, creditors, and customers,
and the strategy of accommodation
will be used to deal with employees
and suppliers, since these stakehold-
ers are critical for survival.
DISCUSSION
Stakeholder management is fundamentally a
pragmatic concept (Donaldson, 1999). Organiza-
tions have finite resources, and managers must
effectively deal with many pressures in their
competitive environments, in addition to those
exerted by stakeholders. Finite resources and
business concerns are likely to substantially in-
fluence corporate decisions, including those re-
lating to CSP. Indeed, Carroll (1979), Shrivastava
(1995), and others (e.g., Gioia, 1999) have all em-
phasized the primacy of economic responsibility
over noneconomic responsibilities. Results of a
recent study provide indirect support for such
arguments. For instance, in a study that in-
volved CEOs, Agle et al. (1999) found that top
managers attributed more importance to stake-
holders who contributed to the traditional pro-
duction function—shareholders, employees, and
July
customers—than to government and community
stakeholder groups.
In this article we integrated theory and re-
search from disparate areas to present a de-
scriptive stakeholder theory. The theory is
founded upon the premise that organizational
needs vary with life cycle stages. The particular
stakeholder or stakeholders with potential to
meet those needs will be perceived as critical to
organizational well-being, and their concerns
and issues will be addressed proactively, or at
least accommodated. Stakeholder strategies of
defense and reaction will be used to deal with
other stakeholders, depending on the extent to
which the organization relies on those stake-
holders.
Rowley (1997) argrues that firms do not respond
to each stakeholder individually but, instead,
address the simultaneous demands of multiple
stakeholders. Our theory goes a step further to
show that organizations are likely not only to
use different strategies to deal with different
stakeholders at a given time but to use different
strategies to deal with the same stakeholder
over time. For instance, according to our stake-
holder theory, in the start-up stage stockholders,
creditors, and customers will be addressed pro-
actively, and employees and suppliers will be
accommodated. However, a start-up organiza-
tion will use the strategy of defense to interact
with government and community stakeholders
and the strategy of reaction to deal with trade
associations and environmental stakeholder
groups. As noted before, the strategy an organi-
zation uses to deal with a stakeholder will vary
with the life cycle stage of the organization. For
instance, employees will be accommodated in
the start-up stage, addressed proactively in the
growth and mature stages, and then only ac-
commodated in the decline/transition stage.
In contrast to Brenner and Cochran's (1991)
model, our stakeholder theory is falsifiable, and
it is much more comprehensive than earlier at-
tempts to develop descriptive stakeholder mod-
els (e.g., Jones, 1994; Mitchell et al., 1997). For
instance, it is more comprehensive than Mitchell
et al.'s (1997) model because we not only identify
the critical stakeholders but also detail the
strategies most likely to be pursued by manage-
ment to deal with those critical vis-a-vis other
stakeholders in each stage of the organizational
life cycle. Identifying the relative importance of
stakeholders and describing strategies an or-
2001 Jawahar and Mclaughlin
ganization might use to deal with those stake-
holders is or should be the essence of any viable
descriptive stakeholder theory. This paper is the
first to advance such a comprehensive descrip-
tive stakeholder theory. The explicitly stated
theorems and propositions present a wealth of
research opportunities that have at least the
modest potential to elevate our stakeholder the-
ory into the ranks of major theories of the organ-
ization. ^v,-;.-««..,,^;a;feM.;,.ra,,i.,'.,;, , ..-,,/,.-
LIMITATIONS AND RESEARCH IMPUCATIONS
The stakeholder theory presented here con-
tains several propositions that can be tested
using the methodology devised and used by
Clarkson (see Clarkson, 1988, 1991, 1995). A com-
prehensive test of our theory will require cate-
gorizing organizations into one of the life cycle
stages, measuring organizational decision mak-
ers' perceptions of threats and their framing of
resource allocation decisions, and using Clark-
son's RDAP scale to discern strategies used to
deal with stakeholders. Such a comprehensive
test will involve multiple levels of analysis and
the use of multiple methods of data collection.
The stakeholder theory we present ignores in-
dividual differences. Managers' beliefs, values,
and ideologies are likely to influence the strat-
egies the managers use to deal with different
stakeholders. For instance, Greer and Downey
(1982) report that managers' values relative to
social regulation influenced their reaction to
stakeholders covered by those statutes. Simi-
larly, top managers' beliefs regarding the role of
corporations in society have been shown to in-
fluence insurance firms' responses to social
pressures (Miles, 1987). Our theory does not ex-
plicitly address the politics involved in the de-
cision-making process (Cohen, March, & Olsen,
1972). Clearly, politics are likely to be most evi-
dent in decisions that pertain to the allocation of
scarce resources (Pfeffer & Salancik, 1978). For
instance, functional managers, in order to in-
crease their power, may exaggerate threats from
their stakeholders, leading top managers to
form an inaccurate picture of demands on the
organization. Such acts of self-interest may
cause the organization to be out of sync with the
predictions of our stakeholder theory.
This stakeholder theory was developed to spe-
cifically describe the CSP of strategic business
units as they evolve from one stage to the next.
411
Larger, diversified organizations with multiple
divisions may have the resources to actively
address stakeholders of divisions that are in the
start-up or revival stages. In future research
scholars should investigate this possibility to
delineate potential boundary conditions. Be-
cause the incidence of certain kinds of threats is
much more common in some life cycle stages
than in others, we have focused attention on
threats specific to life cycle stages. However, we
realize that organizations may face threats in-
dependent of life cycle stages (e.g., government
intervention in the form of regulation/deregula-
tion, technological innovation) that could cause
organizations to be out of sync with cycle-
specific predictions. Even in such cases, our fun-
damental argument that an organization will
use proaction, accommodation, defense, and re-
action strategies to deal with stakeholders, de-
pending on the extent to which those stakehold-
ers have the ability to fulfill the "critical"
business needs of the organization, is likely to
hold.
Our stakeholder theory may be limited to tra-
ditional businesses. The recent phenomenon of
dot.com companies appears to defy traditional
business models. Investors provide funding for
dot.com companies, even when such companies
acknowledge bleak prospects for profits in the
short to midterm. In contrast to traditional organ-
izations, because of the ease with which dot.com
businesses can raise capital, such companies
may not actively address the issues of creditors
and investors in the start-up stage. Instead, the
key concern for dot.com business start-ups ap-
pears to be attracting talented employees with
the technical expertise to develop the product/
service. As electronic commerce matures, it will
be interesting to observe if the forces that drive
dot.com companies shift toward and more
closely align with the models and concepts
relevant to traditional business organ-
izations.
The descriptive stakeholder theory we present
does not explicitly address how CSP may vary
with the industry of the organization. For in-
stance, during the start-up stage, environmen-
tal, government, and community groups are
likely to be among the critical stakeholders for a
hazardous waste disposal company but not for
a financial institution. Consequently, whereas a
disposal company in the start-up stage will pro-
actively address issues of environmental, gov-
 412 Academy of Management Review
emment, and community groups, a financial in-
stitution is unlikely to do so. Also, Waddock and
Graves (1997) note that the average level of CSP
varies with industry. However, research also
shows that firms in the same industry might
exhibit different responses to similar institu-
tional pressures (Bhambri & Sonnenfeld, 1988;
Miles, 1987). In future research scholars should
examine such industry differences and also in-
vestigate the influence of individual differences
and organizational politics on an organization's
stakeholder management strategies.
The complexity of organizations and organ-
izational phenomena guarantees that theories
and models, especially universal ones, cannot
give a complete representation. Our attempt to
develop a descriptive stakeholder theory from
the contingency perspective and stretch the
bounds of current thinking on stakeholder
management is the primary contribution of
this article.
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I. M. Jawahar is an assistant professor of management at Illinois State University. He

received his Ph.D. in human resource management and organizational behavior from
Oklahoma State University. His current research interests include performance ap-
praisal, organizational justice, and social issues in management, particularly stake-
holder theory and practice.
Gary L. McLaughlin is the senior director for Intemational Tax at Wal-Mart Stores, Inc.
He received his MBA from the University of Arkansas. His interests include stake-
holder management and the management of global cross-functional teams.